The antidote to terrorism – economic growth

by Judith Barnett

Monday,  June 13, 2005

Why would a multinational company, with the resources to open plants anywhere in the competitive global marketplace, contemplate making an investment in the Middle East considering the current cicumstances?
The answer could be that not only does the Middle East offer profitable markets in one of the fastest-growing regions in the world, there is also a sense among some companies that economic growth is vital in the struggle against terrorism.

A new manufacturing plant in Cairo recently opened, an investment of a multinational company and seeing the enthusiastic faces of the young Egyptian staff illustrated the best possible program to fight terrorism that the world could create - jobs, training, and the promise of a future.

Political change and the upcoming September election, while an interesting and constant conversation topic on the streets of Cairo, has crowded out a far more critical set of issues – youth, unemployment, and hopelessness.

If Arab youths are to shun the instant heroism that militant groups offer, they need jobs.

Unemployment in Egypt is somewhere between 10 to 25 percent. In order to control unemployment, Egypt will need to achieve real growth of at least six percent annually, compared with last year’s four percent. 

According to the United Nations, Egypt’s population will exceed 100 million by 2020. The economy will need to generate between 600,000 and 800,000 new jobs annually just to absorb these new entrants into the labor force.

The private sector, encumbered by governmental red tape, unavailability of capital, and inadequate support for entrepreneurial ventures, must be enabled to lead the way.

With encouragement and financial assistance from the United States and Europe, parts of the Arab world are making headway in private sector development. One hopeful program is the Qualifying Industrial Zones project, conceived in an obscure U.S law and first implemented by a dynamic 28-year old Jordanian entrepreneur in the 1990s.

The project allows approved goods to be imported into the United States free of duty if they involve economic cooperation between Jordan and Egypt, or between the West Bank and Israel.

The project has been hugely successful in Jordan. Between 1999 and December 2004, the zones attracted $450 million in capital investments, generated over $2 billion in exports to the US, and created over 40,000 new jobs.

There are other signs of private sector development, large and small, in Egypt. Prime Minister Ahmed Nazif, who as communications minister revolutionized access to computers and the Internet, has brought in about $1 billion of new investment in information technology every year. 

Hyper One, Egypt’s first 100 percent Egyptian-owned hypermarket, is officially opening its 10,000 square-meter store with a $17 million investment.

How can companies that do not want to invest directly help to fight the war on terror? 

They can support the Egyptian and Middle East economies with all types of training programs, legitimate technology transfers, and well-structured capital funds to develop and grow crucial private companies.

What does this all means to the U.S in particular as it tries again to develop public diplomacy and credibility?

Having obligated $200 billion for the war in Iraq, with no exit strategy and no end to the tragedies for military and civilians in the war zone, how does the U.S concretely change its tattered image?

“What the American leadership must realize is that its current efforts at public diplomacy by the sword are creating a recruitment program for young terrorists. You need to help us put these kids to work,” said one Egyptian worker.

Although adding to the civil service ranks in Egypt is far less desirable than private sector development, perhaps the United States should consider reprogramming some of the Iraq budget to supplement the current micro-enterprise lending programs for new companies, to develop new training programs, and to create finance agencies in the Middle Eastern countries such as the US Export Import Bank and the US Trade and Development Agency that will provide funding and risk insurance for commercial ventures.

But while the people of the Middle East speak disparagingly of the US government, they are openly positive about Americans as a people.

“We are schizophrenic,” a waiter in a coffee shop said. “We do not like the US government, but we love the American people. My son and his friends dream to go to America one day. But I am too old to go, so maybe I send my son. Or maybe one day he can work for an American company and stay here with us. My son has his dream, but that is mine.”

Judith Barnett is a former Deputy Assistant Secretary of Commerce for Middle East and North Africa. She is now President of the Barnett Group and advises multinational companies on solving trade problems in the middle eastern market.

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